Morning Mumble: Profitability (MERL).

Good Morning,

For regular readers, Merlin Entertainment (MERL) trading update after the accident at Alton Towers in June. MERL belatedly update the market on the trading environment as a result. In full below, (EMC: MERL 2 June 2015), 

It was surprising that Merlin Entertainment (MERL) have not updated the market on the casualties at Alton Towers yesterday, with 4 serious casualties in an incident around 2pm yesterday. One wishes them a speedy recovery, but with suggestions about the health of rides and how the company has dealt with concerns, could this have further ramifications for MERL's theme parks per se. (BBC) One certainly to watch as the HSE will become involved if they haven't already. 

(Item's in bold are addition today). 

Research in one key area, showing it pays to go the extra mile rather than balance sheet analysis and assumption. MERL will also likely suffer as a result of a weaker Euro, not only from us natives going abroad, but more so less visitors to their themes.' 

Over to Merlin Entertainments to cover the impact, 

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Action is being taken to rebuild momentum and re-engage with our customers. However, based on most recent trading and our assessment of the likely trajectory over the key summer trading period, the 2015 EBITDA for the Resort Theme Parks Operating Group is now expected to be in the range £40 to £50 million (2014: £87 million). The magnitude of the financial impact is the result of both a significant reduction in revenue and the requirement to maintain an appropriate investment in customer service and marketing through peak season.

MERL go as far to suggest that 2016 profitability will be impacted as well, which is wise but a completely unknown variable with current media trends suggesting people will remember the event. MERL state, "Although difficult to assess at this stage, we believe that there may be some continued adverse impact on the Resort Theme Parks Operating Group profitability in 2016". 

The financial impact couldn't have happened at a worse time, this was the build up to peak season. Unfortunate for those employed locally reliant on the incomes of the visitors. There could be other issues as a result of the HSE investigation, with recommendations that could be costly to implement across the estate, not just Alton Towers. 

Whether the management were right to suspend marketing etc...is another matter. Quite what the justification was/is may have further implications. Theme parks on the whole generally have a good safety record, certainly in Europe. 

The question is, do we have another PLUS 500 type scenario of a suitor seeing a potential opportunity on MERL? Taking the cash today on the news when the market digests the results. 

Will be back later!

Atb Fraser

Morning Mumble: Merlin Entertainment (MERL), Dixons Carphone (DC.) and the Tangent of South Ireland Property.

Good Morning,

It was surprising that Merlin Entertainment (MERL) have not updated the market on the casualties at Alton Towers yesterday, with 4 serious casualties in an incident around 2pm yesterday. One wishes them a speedy recovery, but with suggestions about the health of rides and how the company has dealt with concerns, could this have further ramifications for MERL's theme parks per se. (BBC) One certainly to watch as the HSE will become involved if they  haven't already. 

Dixons Carphone (DC.) have had a corking year, with little in the way of a disclosed split in trading, Q4 between electrical and phones, one merely has to take the companies word at face value. Like-for-like (LFL) revenue up 9%, full year up 6%, combined with market share increases suggests the majority of growth was via the phones unit after the downfall of Phones4U. One should hope so too! 

Thinking back to yesterday's AO World (AO.), its far from positive in respect that margins have been stable for Dixon's, whom one suspects are not cannibalising their margins by creating a very expensive platform, their own, to then aim to grasp market share and revenue via eBay. 

Over to DC. (Bold is an addition);

It is a truism that the time to fix the roof is when the sun is shining, and we will pursue continued investment in the business this year to do just that. We are making excellent progress but there is still much to do, and many areas of the business that we want to improve further. Delivery options, IT investment, extending our free warranty programme, further training for our colleagues, Norwegian pricing and others are in our sights to make us stronger in the long term.

Quite what AO will compete against, as the physical touch of stock is imperative to sales of certain white goods and home appliances is another thing. Yes, DC. have to shoulder the burden of the "appliance appraiser" whose only intention is to utilise Curry's/Carphone Warehouse to test the product before buying on price. However, as observed and contrary to some research, they're turning browsing into sales. 

For past reading, EMC: Sept 14 DC. 

Cairn Homes intends to float on the LSE. To quote from the announcement, "The Directors believe that no homebuilder of scale is currently operating in Ireland." Now why would that be? Having been viewing property around cork for some time, anyone with Google will be able to explain why and what the Irish market is like. 

Obviously if one pins their hopes on a full blown economic recovery you'll not worry about unemployment being 10%, ok 9.9% if you want to quibble and allegedly hitting 7% by 2020. The population expected to grow by 613,000 people from 2016 to 2031. We'll stop before this becomes a thesis, but we'll leave those with a greater Irish curiosity to consider the reason why there's a "net outward migration" forecast. ­Central Statistics Office (CSO) Ireland. 

Just as a consideration, Cairn Homes appear categorically absent in the difference between the forecasts they are using, which are not inaccurate but suffice to say bullish. Cairn's quoted population increases are based on "internal migration patterns returning to the traditional pattern last observed in the mid-1990s". We'll cover that with the BOOM. Whereas if one factors internal migration based on 2011 numbers (*more realistic) it’s likely to be nearer 384K and births are declining.

The number of home-movers isn’t great (but admittedly improving). Moves between regions in Southern Ireland have been in significant decline the main reason for property appreciation around Dublin. CSO Ireland.

Cairn Homes will no doubt roar away, but save for a longer-term view, investors would be wise to consider the 'full' Irish picture. Unless of course, Cairn Homes are building property for the Irish in Liverpool, Nottingham, Birmingham, Manchester and Bolton. Then again, the listing is the first I've seen in more recent times that the directors are putting significant skin in the game, a credit to them.

The positive is without a doubt the focus on Dublin, with a better resilience and even on the lower estimates has potential for growth, but simply, don't get too carried away with expectations. 

Atb Fraser

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